THE ECONOMIC EFFICIENCY OF DIVERSIFICATION: CERTAINTY EQUIVALENCE AND THE MEAN-VARIANCE MODEL

Allen Featherstone and Charles Moss

No 133739, Staff Papers from Kansas State University, Department of Agricultural Economics

Abstract: The marginal benefit and cost of diversification for Florida orange producers is studied using certainty equivalents. The primary contribution of this study is the application of the mean-variance model to farm management decisions. Results indicate that for moderate and high levels of risk aversion, diversification into strawberry, grapefruit, or additional orange production is not optimal. However, moderately risk-averse Florida orange producers would diversify into grapefruit production, if the annual amortized fixed costs were reduced by as little as 10%.

Keywords: Crop Production/Industries; Farm Management; Financial Economics (search for similar items in EconPapers)
Pages: 23
Date: 1989-01-25
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Persistent link: https://EconPapers.repec.org/RePEc:ags:ksaesp:133739

DOI: 10.22004/ag.econ.133739

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